Quiz No. 06: Financial Instruments

QUIZ NO.
06: FINANCIAL INSTRUMENTS
8. What is the effective interest rate of a bond or

1. Financial assets include other debt instrument measured at amortized
a. Favorable interest rate swap cost?
b. Inventories a. The stated coupon rate of the debt
c. Property, plant and equipment instrument.
d. Patent b. The interest rate currently charged by
the entity or by others for similar debt
2. Financial assets include instruments (i.e., similar remaining
a. Favorable forward contract maturity, cash flow pattern, currency,
b. Leased asset credit risk, collateral, and interest
c. Deferred tax asset basis).
d. Prepaid rent c. The interest rate that exactly discounts
estimated future cash payments or
3. Which of the following assets is not a financial receipts through the expected life of
asset? the debt instrument or, when
a. Cash. appropriate, a shorter period to the net
b. An equity instrument of another entity. carrying amount of the instrument.
c. A contract that may or will be settled in d. The basic, risk-free interest rate that is
the entity's own equity instrument and derived from observable government
is not classified as an equity bond prices.
instrument of the entity.
d. Prepaid expenses. 9. When an impairment of an equity investment
that is classified as available for sale occurs
4. Which of the following is not a financial asset? for a reason that is judged to be "other than
a. Cash temporary," the investment is written down to
b. Equity investment its fair value and the amount of the write-down
c. Inventory is:
d. Receivables a. Recorded as a deferred credit.
b. Included in income.
5. ABC Ltd. paid P7,452 to purchase 6,000 stock c. Recorded as deferred asset.
options on the shares of Review Inc. How d. Treated as unrealized.
should this investment be classified on ABC’s
balance sheet? 10. If there is objective evidence that an
a. Held-for-trading financial asset impairment loss on financial assets measured
b. Held-to-maturity financial asset at amortized cost has been incurred, the
c. Available-for-sale financial asset amount of the loss is measured as the
d. Loans and receivables difference between the asset’s carrying
amount and the present value of estimated
6. PFRS 9 requires companies to measure their future cash flows discounted at the financial
financial assets based on all of the following asset’s
except a. Effective interest rate computed at
a. The company’s business model for initial recognition
managing its financial assets. b. Market rate at the at initial recognition
b. Whether the financial asset is a debt c. Market rate at the date of impairment
or equity investment. d. Implicit rate at the date of impairment
c. The contractual cash flow
characteristics of the financial asset. 11. ABC Inc. loaned P100,000 to Recto Ltd. Recto
d. All of the choices are PFRS 9 has not been making the interest and principal
requirements. payments in accordance with the timing
specified in the loan contract. How should
7. Match the investment accounting approach ABC handle this situation in its financial
with the correct valuation approach: statements?
Not held-for-collection Held-for- a. ABC should write off the loan as a bad
collection debt and adjust the loan account.
a. Amortized cost b. ABC should consider this an impaired
Amortized cost loan and adjust the loan account.
b. Fair value Fair c. ABC should sue Recto to ensure
value payment is made.
c. Fair value d. ABC should take this situation into
Amortized cost account in determining whether the
d. Amortized cost Fair loan is impaired
value
12. Impairment losses recognized in profit or loss shall not be reversed through profit or loss for
a. Equity investment classified as available-for-sale
b. Debt instrument classified as available-for-sale
c. Held-to-maturity securities
d. Loans and receivables
13. Which of the following represents a liability?

a. The obligation to pay for goods that a company expects to order from suppliers next year.
b. The obligation to provide goods that customers have ordered and paid for during the current year.
c. The obligation to pay interest on a five-year note payable that was issued the last day of the current
year.
d. The obligation to distribute shares of a company's own common stock next year as a result of a stock
dividend declared near the end of the current year.
14. Which of the following does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual salary
b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. An obligation that is estimated in amount
15. Which of the following statements is not correct?

a. Conceptually, liabilities should be valued at the present value of all cash to be paid in the future.
b. All liabilities must have a definite amount owed and must not be contingent on a future event.
c. If a note payable is secured, disclosures must specify what assets are pledged.
d. Long-term debts should be reported at their present values computed on the basis of both principal
and interest.

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QUIZ NO.

06: FINANCIAL INSTRUMENTS

8. What is the effective interest rate of a bond or

13. Which of the following represents a liability?

15. Which of the following statements is not correct?

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